Summary

I have slightly adjusted my S&P 500 fair market value downward from 1485 to 1455, but the market is still about 10% undervalued.

A trading range of 1290 to 1455 seems probable for the balance of 2012.

Reward vs. risk is favorable, with 4.5x more upside than downside.

The world's stock markets are hostages to Greece, but I expect Merkel & Co. to step up.

Successfully containing the eurozone debt crisis (or even evidence that the Greek Democratic Party will forge an election victory) will likely result in a spirited market rally.

Changes

Last month, I replaced my four 2012 scenarios with new 2013 economic, corporate profit and stock market outcomes -- it produced a S&P 500 fair market value calculation of 1485.

Let's investigate what fundamental, sentiment and valuation changes have occurred since my last fair market value was updated four weeks ago.

U.S. Economy: A Mixed Bag. Domestic economic data have been mixed relative to my expectations. First-quarter 2012 real GDP growth likely came in a tad under 2%, and second-quarter 2012 real GDP growth should be in the 2% to 2.5% range. Nevertheless, we still seem destined to muddle through with 2% real GDP growth in 2012-2013. Payrolls growth seems stuck at a slightly below consensus level, and the rate of growth in manufacturing activity is decelerating modestly. On the other hand, some major positives for global growth include the drubbing in commodities (a tax cut to the consumer and a prop to corporate profit margins, which opens the door for more stimulative monetary policy around the world), the improvement in housing (the sector represents the greatest divergence in economic series relative to consensus) and still-healthy/elevated consumer sentiment.

Europe's Economy: On the Precipice? The continued debt crisis has resulted in much more risk to economic growth in the eurozone. Greece is moving toward a depression, Spanish yields have recently spiked, and even Germany's manufacturing PMI is falling (to 45.0). While I had expected Greece to exit the eurozone in 2013, there is now a distinct possibility that the nation's exit is imminent (particularly after its elections two weeks ago). The new Greek elections in mid-June will be telling as to what the future holds -- yesterday an opinion poll suggested the possibility of a win for the pro-bailout parties, which could ease concerns that Greece will exit the currency bloc. For now, the U.S. stock market seems hostage to European developments. Many, including Harvard's Niall " We Are About to Start the Second Half of Our Great Depression " Ferguson, are concerned that a European Lehman moment is at hand, but I continue to expect that eurozone authorities will ultimately move to create an FDIC-like facility to insure European bank deposits and will seriously consider floating euro bonds.